Facebook ‘seems to be in a sweet spot,’ and the stock is headed for a record high

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Facebook Inc.’s stock was up more than 6% and headed for a record high after earnings Thursday.

That comes as no surprise to financial analysts, who showered the social-networking giant
FB,
+7.14%

with praise following another blockbuster quarter of advertising sales as well as a spike in non-ad revenue.

“Facebook seems to be in a sweet spot where it is growing revenue at record cadence while keeping ad load relatively in check (evidenced by the 12% impression growth vs. DAU 8% Y/Y),” Barclays analyst Ross Sandler said in hiking his price target to $410 from $350. “Nascent product areas like commerce, paid messaging and the creator tools provide bulls with new upside scenarios.”

Analysts on FactSet, who raised their average price target on Facebook shares to $370.12, are sold on the company’s fiscal first-quarter report Wednesday. Facebook crushed analyst estimates with $26.2 billion in revenue and net income of $9.5 billion, or $3.30 a share.

Advertising, which accounts for nearly all of Facebook’s sales, soared 46% to $25.4 billion as millions of small- and midsize businesses take to online ads to reach consumers during the pandemic. Google parent Alphabet Inc.
GOOGL,
+1.65%

GOOG,
+2.14%

and Snap Inc.
SNAP,
+0.11%

earlier reported similar gains.

“GOOGL and FB Q1 results clearly point to the Permanent Pull Forward (PPF) of demand from COVID, with both companies showing impressive acceleration in Revenue growth, tho (sic) we would note that FB’s was even more impressive,” Evercore ISI analyst Mark Mahaney said in a note late Wednesday that reiterated an outperform rating and price target of $400. “We also believe FB has been one of the most aggressive investors into new growth opportunities throughout this COVID period, which should set them up for several years of sustained premium revenue growth.”

The growth of Facebook’s non-ad revenue from e-commerce, payments, and AR/VR is increasingly important, analysts note. It surged 146% to $732 million, leading Facebook Chief Executive Mark Zuckerberg to devote a large chunk of his opening remarks to that part of the business during a conference call with analysts late Wednesday.

Read more: Facebook shares rise toward record on big jumps in sales, earnings from advertising

Indeed, Mizuho Securities analyst James Lee points out Facebook Marketplace has more than 1 billion monthly active users, and Facebook Shops has more than 1 million active monthly merchants.

“The goal is to build a full-service commerce platform across all properties and geographies, including influencer-driven commerce on [Instagram] and Catalogues on WhatsApp,” wrote Lee, who raised his price target to $400 from $350 while maintaining a buy rating. “These tools allow 200 million businesses (only 5% are currently advertisers) on FB’s platform to transition from offline to e-commerce, including checkouts and payments.”

Facebook’s first-quarter results weren’t entirely pristine. Questions around antitrust lawsuits from the Federal Trade Commission and state attorneys general, as well as privacy changes to Apple Inc.’s
AAPL,
+0.50%

iOS continue to dog Facebook. Company Chief Financial Officer Dave Wehner warned of potential headwinds in the second half of the calendar year due to both, in a statement and later in the analyst call.

Although investors are concerned about the impact of Apple’s IOS 14.5, which makes it harder for app developers like Facebook to target advertising, Facebook Chief Operating Officer Sheryl Sandberg assured analysts that the company’s Aggregated Events Measurement API minimizes the impact of Apple’s changes. 

“We think targeting headwinds from iOS14, cookie deprecation and GAID may create bumps in the road, but FB remains in great shape,” Barclay’s Sandler wrote.

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